Linke Company expects to maintain the same inventories at the end of 2014 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mindthe various department heads were asked to submit estimates of the costs for their departments during 2014. A summary report of these estimates is as follows: Estimated Estimated Fixed Variable Cost Cost (per unit sold) Production costs: Direct materials $ 6.50 Direct labor $ Factory overhead 155,000 $ 2.50 Selling expenses: Sales salaries and commissions $ 55,000 $ 0.60 Advertising 45,000 Travel 15,000 Miscellaneous selling expense $ 3,500 $ 0.15 Administrative expenses: Office and officers' salaries $ 40,000 Supplies $ 3,500 0.20 Miscellaneous administrative expense $ 1,500 0.05 Total S 318,500 $ 17.00 7.00 S $ $ It is expected that 175,000 units will be sold at a price of $25 a unit. Maximum sales within a relevant range are 200,000 units. Instructions 1. Prepare an estimated income statement for 2014. 2. What is the expected contribution margin ratio? 3. Determine the break-even sales (a) in units and (b) in dollars. 4. What is the expected margin of safety in dollars and as a percentage of sales? 5. Determine the operating leverage. LINKE CO. Estimated Income Statement For the Year Ended December 31, 2014 Sales Cost of goods sold: Direct materials Direct labor Factory overhead Cost of goods sold Gross profit Expenses: Selling expenses Sales salaries and commissions Advertising Travel Miscellaneous selling expense Total selling expenses Administrative expenses: Office and officers' salaries Supplies Miscellaneous administrative expense Total administrative expenses Total expenses Income from operations Contribution margin ratio: Sales Units Unit Yariable Cost Variable costs Contribution margin Sales Contribution margin ratio . Break-even sales: Fixed costs Sale Price Unit Yariable Cost . Unit contribution margin Break-even sales (units) Sale price Break-even sales (dollars) Units Margin of safety: Sale Price Expected sales Break-even point Margin of safety (in dollars) Expected sales Margin of safety (as a percentage of sales) Operating leverage: Unit CM Units Contribution margin Income from operations Operating leverage